Death arguably the most unpleasant topic to think about from even a theoretical perspective. This final act pulls a person from friends and loved ones forever.
It leaves behind many memories, often both positive and negative. One very negative aspect of death is the debt of the deceased.
When people die, does their debt fade away or is it left for survivors to handle?
Most people leave behind some debt when they die, even if it is just a cable or utility bill. In most cases, the debt is much larger, representing past-due credit card bills, a car payment, and even an adverse credit remortgage.
There is little time to grieve for the lost loved one before having to focus on practical matters like death certificates, funeral arrangements, insurance policies, and debts.
The longer debts of a deceased are put on the back burner, the larger they will grow. The process of handling the estate of the deceased is called probate and it adheres to a will signed by the individual.
Creditors are quick to check probates so they can claim back debts when someone dies.
Assets in the estate determine whether there is money available to pay them.
Who Pays Debt Upon Death
If the deceased had credit card debt, it is typically from the estate assets. However, if the account included payment protection insurance (PPI) with death cover, the payment may instead be reclaimed through the insurance.
If there is no PPI and the estate does not have enough assets, the credit card company will typically write off the debt. Credit cards are considered contracts with the account holder and are not transferred to beneficiaries.
Some individuals use personal loans to repay more expensive debts or to buy modestly priced vehicles or other items.
If the deceased individual has an outstanding personal loan in his or her name only, this will be paid through the estate, through PPI with death cover, or through life insurance tied to the loan.
A beneficiary will not be responsible unless he or she acted as a guarantor or joint borrower
Life insurance is often used to pay off a mortgage upon the death of the insured. Types might include mixed-use semi-commercial mortgages which include a residential dwelling as well as a commercial entity such as a shop.
It can also be used to provide the beneficiary with a lump sum.
Using the money to repay large debts like an HMO mortgage or car loan is wise. You may also want to consider using a remortgage structure for debt consolidation purposes.
If the home is shared with a surviving spouse, it can prevent the sale of the property to repay debts.